JPMorgan's Madoff Settlement Could Prove Elizabeth Warren Right

Another day,
another $1.7 billion in fines for JP Morgan. This time,
it's for failing to catch Ponzi schemer Bernie Madoff as it
managed his ill gotten gains. Now the bank has to admit that it
didn't have the systems in place to catch Madoff and implement
them under a deferred criminal prosecution agreement.

You could call this a case of "too big to manage," one of
anti-Wall Street crusader Senator Elizabeth Warren's (D-MA)
favorite catchphrases.

Back in November, she used it to talk about reinstating
Glass-Steagall, the regulation that once split commercial
and investment banks.

"The new Glass-Steagall Act would attack both 'too big' and 'to
fail,'" Warren said..."It would reduce failures of the big banks
by making banking boring, protecting deposits, and providing
stability to the system even in bad times. And it would reduce
'too big' by dismantling the behemoths, so that big banks would
still be big—but not too big to fail or, for that matter,
too big to manage, too big to regulate, too big for
trial, or too big for jail."

In terms of management, the Madoff case is a catastrophe arguably
worse than the London Whale.

Sure, the London Whale ended up costing JP Morgan $6 billion, and
it was born in the bank's own Chief Investment Office, but that
failing trade was only hidden from JPM's execs for about half a
year. Madoff managed to fool everyone for decades.

Well, almost everyone. There were people at JP Morgan who sounded
the alarm, according to Iriving Picard, the trustee appointed by
New York's bankruptcy trustee to review Madoff's case for his
"clients".

"For whatever it['s] worth, I am sitting at lunch with Matt Zames
who just told me that there is a well-known cloud over the head
of Madoff and that his returns are speculated to be part of a
[P]onzi scheme."

So how did something like this get lost? Banks are supposed to
file 'Suspicious Activity Reports' for this kind of thing. Those
go to the Department of Justice.

The DOJ, for its part, gets 1.6 billion of these SAR reports a
year, and JP Morgan files up to 250,000 of them itself.

Still, two high level executives had their suspicions about
Madoff a year and a half before he was arrested. They won't
penalized for it though. That's part of the deal with the DOJ,
according to the Wall Street Journal.

Take that as you like it.

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